UPDATE 2-Pershing's Ackman says GM should reorganize

(Adds Ackman's stake in Target)

BOSTON, Nov 11 (Reuters) - Hedge fund manager William Ackman, an activist investor known for pushing companies to do a better job, said it would be a mistake to funnel fresh money into U.S. automaker General Motors Corp GM.N as the company is currently structured.

"GM should be allowed to succeed," Ackman, who runs New York-based Pershing Square Capital Management, told Reuters on Tuesday. "And the only way GM can succeed is if it has a balance sheet its business can support."

GM, whose shares hit a 65-year low of $2.76 when they tumbled 15 percent on Tuesday, has lobbied the U.S. government for financial aid, but so far the U.S. Treasury has refused to extend its Troubled Relief Asset to U.S. carmakers.

Ackman, who does not own GM shares, said the way he would expect GM to get to that position is by agreeing to a "prepackaged bankruptcy in which GM's creditors erase large amounts of liabilities in exchange for equity in the newly restructured GM."

Should a newly restructured GM still need more liquidity for its balance sheet, "then the government can play an important role while protecting taxpayers from losing money," Ackman said in a telephone interview.

Ackman, who owns shares in retailer Target Corp (TGT.N) and recently urged the company to unlock value by spinning off a separate company to own the land on which its stores are built, also discussed the automaker with TV journalist Charlie Rose in a program that will be aired on public television on Tuesday evening.

On Tuesday, U.S. House of Representatives Speaker Nancy Pelosi said federal aid for the failing U.S. automakers is urgently needed and she is confident Congress would act on emergency bailout legislation next week.

The Bush administration has resisted calls to let the automakers get a piece of the government's $700 billion bailout plan, even though GM, the country's biggest automaker, may not survive without it. On Monday, the White House said any bailout for the automakers would have to originate in Congress.

Ackman has offered prescriptions to failing companies before. This summer, he laid out a plan to restructure mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) at a time investors expressed doubts about the government's proposal to prop up the battered institutions. (Reporting by Svea Herbst-Bayliss, additional reporting by Dan Wilchins in New York; Editing by Richard Chang and Andre Grenon)